 Home
equity loan called 'unsecured'
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 Hi
Dr. Don,
Recently, I reviewed my credit history from one credit bureau. In
it, I noticed a loan type as "unsecured," in which I have
more than a $20,000 balance. Actually, that one is a home equity
(and in my bank statement it is shown as second mortgage) from a
credit union. I did pay off my first mortgage with the above loan
and this is the highest balance I have.
My credit card balances are zero. Does it matter if
the loan type is left as "unsecured" in credit history, or is it
good idea or a possibility to request for change of type to second
mortgage or home equity? Please let me know.
Thanks in advance
-- Matthew Mortgage
 Dear Matthew,
If the home equity loan, combined with any outstanding mortgage
loan balance, is for an amount more than the property is worth,
then a portion of the loan is unsecured. Since you used the proceeds
from the home equity loan to pay off your mortgage, it's possible
that is the reason that the loan was originally listed in your credit
report as unsecured. You should have a good enough handle on what
your home was worth when you took out the home equity loan to know
whether or not that was the case.
A second mortgage is called that because it is second in line to the first mortgage if the property goes into foreclosure. If you no longer have a first mortgage, then the home equity loan is first in line and technically it isn't a second mortgage.
I recommend that you take the time to get this corrected
on your credit reports. Try talking to the lender first, rather
than going through the dispute process under the Fair Credit Reporting
Act, or FCRA. If you can't come to terms with your lender, then
you can dispute the account. The Bankrate feature, "Fixing
mistakes on your credit report," explains how to dispute an
item on your credit report.
The reason I recommend that you get this corrected
is that the mix of credit on your credit report is one of five components
in your credit score. Granted, the type of credit used is only 10
percent of your credit score, but the credit score looks at the
ratio of credit used versus credit available and having the home
equity loan listed as unsecured credit might unfavorably impact
that ratio.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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